Tuesday, 31 August 2010

16:14 BST - SPX Update: 1 min: bearish counts

We had the makings of a nice impulse wave finally developing to the downside, but its no longer easy to count a simple impulse from the 1065.21 high to today's low.  I think its now looking like an expanding diagonal as shown on this chart:

SPX 1 min - from the 1081.58 high:

If I try to count an impulse down from 1065.21, the move  up from today's low would have to be a 4th wave within that impulse. However, it doesn't really look like a 4th wave. It looks more like a 2nd wave, which is why this expanding diagonal comes to mind. Here are some of the options on this overall bearish count:

1) if its a diagonal, then it could be a leading diagonal wave (1) (it would be wave (1) of [5] on the main count labelled on this chart). This is invalidated above 1065.21; or

2) it could be an ending diagonal representing all of wave [5] (truncating, therefore) and therefore also wave iii. We'd now be in a wave iv rally. This would be invalidated if we take out 1069.49;

3) if the 1039.70 low was the end of wave iii and 1065.21 was wave [A] of iv, today's low could be double zig zag for [B] of iv. We would now be going up in [C] of iv. If we take out the low at 1039.70 before taking out 1065.21, this count would be invalidated since I'm counting wave [A] of iv as 5 waves, so its forming a zig zag and wave [B] in a zig zag can't move below the start of wave [A]. Also, wave [C] of iv has to stay below 1069.49 or the count is invalidated.

If any of these three counts is playing out, there could be more upside, but it is limited by the invalidation points referred to above. If they are taken out, then attention has to switch to the other counts which imply varying degrees of more upside (see yesterday's end of day update).

Here's a chart showing this count from 1129.24 for a bit more context:

SPX 1 min - from the 1129.24 high:

This chart shows the other possibility that we're still in wave ii up, and now in wave [C] of ii which should take us above the 1100.14 high. I'm not sure I like this count since wave ii is looking abit long in the tooth now, but it remains valid.

For the moment, for these bearish counts listed above, I'm watching the 1065.21 high and the 1069.49 low.